CRANBURY, N.J. (DTN) -- Oil futures on the New York Mercantile Exchange and Intercontinental Exchange Brent crude took another drubbing Tuesday, with West Texas Intermediate and Brent erasing more than 7% of their value at the close after the Organization of the Petroleum Exporting Countries painted a bearish market for 2019, projecting in their monthly outlook supply overtaking demand next year by a widening margin.
OPEC's morning release of its Monthly Oil Market Report had several bearish features, including October crude production figures that showed OPEC output climbing to a 22-month high in October at 32.9 million bpd. It was the highest production rate since December 2016, the month in front of the start of the Vienna agreement, which reduced countries' production quotas starting in January 2017.
The monthly increase in OPEC crude production, the seventh straight, was realized even as Iranian crude output dropped for a sixth straight month to 3.296 million bpd, the lowest production rate by the Islamic Republic since March 2016, amid U.S. sanctions on Iranian oil exports. The sanctions were seen creating a very tight global oil market disposition in the fourth quarter. However, a run-up in oil production from Saudi Arabia, Russia and the United States, including massive upside revisions in U.S. oil production made by the Energy Information Administration, and U.S. waivers allowing eight countries to continue buying Iranian oil for 180 days undermined the scenario.
OPEC also cut expected oil demand for this year and in 2019 from its outlook in October, reducing this year's expected demand rate by 40,000 bpd because of lower demand in China and India in the third quarter than previously anticipated. For 2019, OPEC cut 70,000 bpd from its anticipated world consumption rate because of economic uncertainties and a lower projected economic growth rate. The revision trimmed the year-on-year growth rate to 1.29 million bpd or 1.3% for 2019 compared with an annual growth rate for this year at 1.5 million bpd or 1.5%.
As demand expectations slip, supply projections grew, with OPEC revising non-OPEC production up 90,000 bpd for annual growth of 2.31 million bpd and supply at 59.86 million bpd. For 2019, the upside revision was 120,000 bpd to 62.09 million bpd for year-on-year non-OPEC production growth of 2.23 million bpd.
"Although the oil market has reached a balance now, the forecasts for 2019 for non-OPEC supply growth indicate higher volumes outpacing the expansion in world oil demand, leading to widening excess supply in the market. The recent downward revision to the global economic growth forecast and associated uncertainties confirms the emerging pressure on oil demand observed in recent months," said OPEC in their MOMR.
NYMEX December WTI futures recorded a record 12 consecutive sessions with a loss, with the contract plunging $4.24 to a one-year low settlement on the spot continuous chart of $55.69 bbl. ICE January Brent futures lost $4.65 with a $65.47 bbl settlement, the lowest spot settlement since mid-March.
NYMEX December ULSD futures freefell 9.31cts to a $2.0625 gallon settlement—a fourth-month low on the spot chart. NYMEX December RBOB futures took a 9.4cts nosedive to a $1.5427 gallon settlement, with the previous settlement low on the spot continuous chart registered in mid-July 2017.
Brian L. Milne can be reached at email@example.com
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